Regulatory Roundup : Where to draw the line on the issue of leverage
In this Regulatory Roundup feature Felix Shipkevich, General
Counsel at CMS Forex, examines the question of leverage and what
factors may influence the way regulators draw the line of what is
the appropriate level of leverage that should be allowed to be used
by retail clients, if any.
Every morning on my way to the office, I pass a small playground
located in the middle of a residential area in lower Manhattan.
Next to a sandbox and several swings, there is a see-saw that
reminds me of my childhood. Growing up on the heavy side, my
weight was a perfect tool to take advantage of the skinnier kids
by gearing them high in the air on a long wooden see-saw. My
secret mission, to take advantage of my weight on a wooden
see-saw beam, got me in trouble a few times with the teachers,
who reminded me that gearing up innocent kids was a wrong thing
In many respects, the world of foreign exchange regulation is
much like a playground. Retail clients sometimes get hurt while
playing wildly and recklessly on the playground of the FX market,
and regulators act like teachers or parents that oversee the
free-spirited retail clients trying to speculate in the FX market
in the hope of winning big. Just like children, retail clients
are vulnerable. A wrong decision or a wild bet can cause
vulnerability in this high stakes game. But is leverage to blame
for retail clients' wrong bets?
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